Apple's Indestructible Super Suit Gets a Slight Tear

What Apple's third quarter performance shows is that it is not an invulnerable conglomerate immune to economic forces, said tech analyst Azita Arvani. "It lives in the same universe as the rest of us. Some macro-economic trends happened to hit them as well: In Europe, sales were flat overall, with some countries like France, Greece and Italy doing poorly."

Uh oh. Apple has done the seemingly impossible: It failed to meet analysts' expectations for its quarterly performance.

Not that an investor would feel any sense of dismay by merely studying Apple's numbers. The company posted quarterly revenue of US$35 billion and quarterly net profit of $8.8 billion on Tuesday. These results compare to revenue of $28.6 billion and net profit of $7.3 billion in the year-ago quarter. Apple's cash pile rose to $117 billion, an increase of $7 billion during the quarter.

Apple sold 17 million iPads, exceeding forecasts. Where it sinned -- in the eyes of Wall Street at least -- was in the number of iPhones it sold: 26 million, which clocked in at the low end of expectations. Analysts surveyed by Bloomberg had predicted 28.4 million in sales.

'Apple as in AAPL'

"Most CEOs would announce such results with goose bumps of excitement," Andreas Scherer, managing partner with
Salto Partners, told MacNewsWorld. "But we are talking about Apple as in AAPL."

The missed iPhone sales mark was compounded by other disappointments in the report. Analysts had expected the company to report higher earnings, Scherer said. Also, Apple's fourth-quarter guidance disappointed: It forecast $7.65 a share for earnings on revenue of $34 billion versus analysts' expectations of $10.22 a share earnings on revenue of $38 billion.

How to Fix It

The wisdom of the Street shouldn't be ignored. To make up lost ground in the short term, Apple will have to release the iPhone 5, Scherer said.
"People are waiting for it to hit the market."

There is a bigger question for Apple, though, and that is what will be its next mega gadget, he continued. "That enormous $117 billion stockpile of cash would allow the company to do all kinds of mergers and acquisition. Yet, given the type of company Apple is, I believe that the answer will come from Apple's own labs."

Ignore the Hype

Even with Apple's future product development plans opaque, at best -- and even considering the missed mark for iPhone sales -- the company is doing well, Azita Arvani of the Arvani Group told MacNewsWorld.

Overall, the Apple numbers look quite good, she said. "In particular, iPad sales at 17 million are 44 percent better than last year's and 84 percent better than last quarter's."

At 26 million units, the iPhone numbers are pretty respectable, she argued. "But some are disappointed since it was down from 35 million in the March quarter, even though it was up by 28 percent from last year. Given that iPad sales are pretty strong and iPhone sales are still quite healthy, I think we can write off the slowdown in iPhone growth to users waiting for the next big upgrade."

Most analysts had included this slowdown in sales of iPhones in their estimates, Arvani noted, "but it is hard to predict it accurately."

In fact, there is a silver lining to these numbers that Wall Street is missing, argued John Jackson, vice president of research at
CCS Insight.

"It's that consumers are quite tuned into the cycle of iPhone launches at this point, so latent demand for the next-generation iPhone may be so strong that the financial results surprise in exactly the opposite direction either next quarter or in Q4, or both," he told MacNewsWorld.

Just Like the Rest of Us

What this quarter also showed is that Apple is not an invulnerable conglomerate immune to economic forces, said Arvani.

"It lives in the same universe as the rest of us," she quipped. "Some macro-economic trends happened to hit them as well: In Europe, sales were flat overall, with some countries like France, Greece and Italy doing poorly."

The good news, she said, is that Apple didn't feel any pain in the U.S. and China.